Citibank 2015 Annual Report Download - page 140

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While Citi’s net total DTAs decreased year-over-year, the time remaining for
utilization has shortened, given the passage of time, particularly with respect
to the FTCs component of the DTAs. Although realization is not assured,
Citi believes that the realization of the recognized net DTAs of $47.8 billion
at December 31, 2015 is more-likely-than-not based upon management’s
expectations as to future taxable income in the jurisdictions in which the
DTAs arise as well as available tax planning strategies (as defined in ASC
740, Income Taxes) that would be implemented, if necessary, to prevent a
carry-forward from expiring.
Citi has concluded that it has the necessary positive evidence to support
the full realization of its DTAs. Specifically, Citi forecasts sufficient U.S.
taxable income in the carry-forward periods, exclusive of ASC 740 tax
planning strategies. Citi’s forecasted taxable income, which will continue to
be subject to overall market and global economic conditions, incorporates
geographic business forecasts and taxable income adjustments to those
forecasts (e.g., U.S. tax exempt income, loan loss reserves deductible for U.S.
tax reporting in subsequent years), and actions intended to optimize its U.S.
taxable earnings. In general, Citi would need to generate approximately
$59 billion of U.S. taxable income during the FTCs carry-forward periods to
prevent Citi’s FTCs from expiring.
In addition to its forecasted U.S. taxable income, Citi has tax planning
strategies available to it under ASC 740 that would be implemented, if
necessary, to prevent a carry-forward from expiring. These strategies include:
(i) repatriating low-taxed foreign source earnings for which an assertion
that the earnings have been indefinitely reinvested has not been made;
(ii) accelerating U.S. taxable income into, or deferring U.S. tax deductions
out of, the latter years of the carry-forward period (e.g., selling appreciated
assets, electing straight-line depreciation); (iii) accelerating deductible
temporary differences outside the U.S.; and (iv) selling certain assets
that produce tax-exempt income, while purchasing assets that produce
fully taxable income. In addition, the sale or restructuring of certain
businesses can produce significant U.S. taxable income within the relevant
carry-forward periods.
Based upon the foregoing discussion, Citi believes the U.S. federal and
New York state and city net operating loss carry-forward period of 20 years
provides enough time to fully utilize the DTAs pertaining to the existing
net operating loss carry-forwards and any net operating loss that would be
created by the reversal of the future net deductions that have not yet been
taken on a tax return.
With respect to the FTCs component of the DTAs, the carry-forward period
is 10 years. Citi believes that it will generate sufficient U.S. taxable income
within the 10-year carry-forward period to be able to fully utilize the FTCs, in
addition to any FTCs produced in such period, which must be used prior to
any carry-forward utilization.
For additional information on Citi’s income taxes, including its income
tax provision, tax assets and liabilities, and a tabular summary of Citi’s net
DTAs balance as of December 31, 2015 (including the FTCs and applicable
expiration dates of the FTCs), see Note 9 to the Consolidated Financial
Statements.
Litigation Accruals
See the discussion in Note 28 to the Consolidated Financial Statements for
information regarding Citi’s policies on establishing accruals for litigation
and regulatory contingencies.
Accounting Changes and Future Application of
Accounting Standards
See Note 1 to the Consolidated Financial Statements for a
discussion of “Accounting Changes” and the “Future Application of
Accounting Standards.”